KR v Royal & Sun Alliance Plc

JurisdictionEngland & Wales
JudgeMr Justice Simon
Judgment Date26 January 2006
Neutral Citation[2006] EWHC 48 (QB)
Docket NumberCase No: HQ03X02173
CourtQueen's Bench Division
Date26 January 2006

[2006] EWHC 48 (QB)



Royal Courts of Justice

Strand, London, WC2A 2LL


The Hon Mr Justice Simon

Case No: HQ03X02173

KR & Others
Royal & Sun Alliance Plc

Mr R.F. Owen QC and Mr Philip Turton (instructed by Uppal Taylor) for the Claimants

Mr Edward Faulks QC and Mr Nicholas Fewtrell (instructed by Hill Dickinson LLP) for the Defendant

Hearing dates: 11, 12, 13 and 16 January 2006

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

The Hon. Mr Justice Simon

Mr Justice Simon



In this action 8 Claimants claim against the Defendant ("the Insurer") pursuant to s.1 of the Third Parties (Rights against Insurers) Act 1930 ("the Act").


From about 1969 until 1990 John Allen had operated a number of children's care homes in North Wales which became known, after the name of its first and main home, as "the Bryn Alyn Community" ("Bryn Alyn"). Bryn Alyn ran 5 homes: Bryn Alyn Hall, Cotsbrook Community Hall, Pentre Saeson Hall, Bryntririon Hall and Gatewen. In 1972 Bryn Alyn Community (Holdings) Limited ("the Company") was incorporated; and in 1973 it took over the operation of the business. Although the existence of the Company ended in financial failure in 1997, it operated successfully for over two decades, employed a large number of staff, and at times earned significant profit. The stated aim of the Company was to provide an alternative to the strict discipline and training regimes of approved schools for children. The majority of children in the Bryn Alyn homes were children who had been placed in the care of local authorities.


In 1995 John Allen was convicted of 6 offences of indecent assault against young male residents between 1972 and 1983, and was sentenced to a term of 6 years imprisonment. He and others also became the subject of allegations of abuse which were investigated by a Tribunal of Inquiry chaired by Sir Ronald Waterhouse. This Tribunal was set up to investigate allegations of child abuse in a number of residential homes in North Wales between 1974 and 1997, including Bryn Alyn.


Some of the allegations gave rise to civil litigation which was made subject to a Practice Direction dated 30 July 1998. 15 lead cases against the Company were chosen to be tried before Connell J; and 14 of these were heard between February and April 2001. The Insurer was, to an extent which is an issue in the present proceedings, the liability insurer of the Company.


The Company had gone into voluntary liquidation on 6 March 1997, did not attend during the trial before Connell J and took no part in the litigation. The Insurer attended and actively took part in the trial as described by Connell J in §3 of his judgment.

… in due course solicitors (for the Insurer) … gave notice to the claimants' solicitors of a potential conflict of interest arising out of an exception clause in the contract of insurance which they had entered into with (the Company). As a result (the Insurer) might be entitled to refuse to indemnify (the Company) against any judgment entered against them in these claims. Accordingly (the Insurer) was added as second defendant and it has contested each claim through leading and junior counsel. It has advanced no positive case, save in the claim by JS, but equally has made few concessions and has required each claimant to prove their claim.


On 26 June 2001 Connell J gave judgment in favour of 13 of the Claimants against the Company. He found that there had been extensive abuse at the institutions owned or managed by the Company. There was an appeal and cross-appeal. The Claimants were successful on the appeal and the cross-appeal, see KR and others v. Bryn Alyn Community (Holdings) Ltd and another [2003] QB 1441.


Following the appeal the 13 successful Claimants brought proceedings against the Insurer. They contend that (1) the Insurer was the Company's liability insurer, (2) the Company incurred liability to the Claimants by the judgment of Connell J and, (3) as a consequence of the Company's liquidation, are entitled to claim directly against the Insurer under the Act.


Five of the claims have been settled; and in relation to the remaining claimants the issues are confined.

The Act


Section 1 provides:

(1) Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then

(b) in the case of the insured being a company, in the event of a winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to the company …

if, either before or after that event, such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall … be transferred to and vest in the third party to whom the liability was incurred.

(4) Upon transfer under subsection (1) … of this section, the insurer shall … be under the same liability to the third party as he would have been to the insured …

The Issues


By its Defence the Insurer raised the following issues:

i) Whether relevant cover existed prior to 22 August 1976? The Insurer accepts that cover incepted under an applicable Liability Policy on 22 August 1976, but contends that there was no Policy in respect of any prior period. This is relevant to 4 of the 8 Claimants who were abused wholly or partly outside the admitted period of cover. I shall refer to this as "the period of cover issue".

ii) Whether the claims are excluded under the terms of the Policy? Under the terms of s.1 of the Act a claimant is entitled directly to enforce the assured's rights under the Policy of Insurance. The Insurer contends that the assured could not have brought a claim under the relevant Policies because the Policies excluded liability for the deliberate acts of the assured and/or precluded the assured from relying on its own wrongdoing.

iii) Whether from 1981, when the Policy wording was changed, the claims are excluded on the additional basis that the terms now excluded the wrongdoing of the assured's partners, directors or managerial employers in the context of the deliberate acts of the assured?

I shall refer to issues (ii) and (iii) as "the exception issues"

The terms of the relevant policies


The relevant Policy wording for the Combined Insurances Policy – Liability Section from 1976 was:

A. Indemnity to Insured

1. In the event of … (b) bodily injury to any person not being an employee … happening in the territorial limits and caused in the course of the business the insurers will subject to the limits of liability indemnify the insured in respect of any legal liability incurred in respect of such injury or damage.

D. Exceptions


The Insurers shall not be liable for

8. Injury or damage which results from a deliberate act or omission of the insured and which could reasonably have been expected having regard to the nature and circumstances of such act or omission.

The relevant policy wording for the Combined Insurances Policy – Liability Section from 1981 was:

1. In the event of … (b) bodily injury to any person not being an employee … happening during the period of insurance in the territorial limits and caused in the course of the business the insurers will subject to the limits of liability indemnify the insured in respect of any legal liability incurred in respect of such injury …

C. Exceptions

This section does not cover liability in respect of …

4. Injury damage or financial loss which results from any deliberate act or omission of the insured his partners directors or managerial employees and which could reasonably have been expected having regard to the nature and circumstances of such act or omission …

The period of cover issue


The Company was incorporated on 10 November 1972 and started trading on 1 July 1973. As indicated above, some of the Claimants make a claim in respect a period prior to the date (August 1976) on which the Insurer accepts that there was cover. The Liquidators of the Company and the Company's brokers (Williams Financial Services Limited) have said that they do not have any relevant documents which might throw light on the cover before August 1976. The Insurers also say that they have no records of a policy which predates the August 1976 policy. In short, no relevant Policies have been produced from any source.


The lack of documentation, the adequacy of the search for them, and the inferences which can properly be drawn have formed the focus of the factual dispute between the parties.

The oral evidence


Mr Richard Prince is the Insurer's Liability Account Manager for the North of England. His evidence was that it was unlikely that any relevant Policy would have been non-standard. All relevant underwriting documents in respect of the assured would have been transferred to Liverpool in 1988 and thence to Manchester. However it is likely that the underwriting files for any significantly earlier period would have been destroyed since the Insurer's clerical procedures required papers in relation to combined policies to be kept only for 2 years. In any event, Policies on standard terms were not routinely kept and any documents which may have existed would have been destroyed when the Insurer's Manchester office was destroyed by a bomb in 1996.


In 1999–2000 Mr Prince was asked to create a computer search engine that would enable the Insurer to show compliance with the Employer's Liability Code of Practice. Under this Code of Practice an insurer was obliged to issue a statement stipulating the earliest date from which it was, or was not, an employer's liability...

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